How To Successfully Apply For A Mortgage While Self-Employed

apply for a mortgage while self-employed

Being your own boss gives you a feeling of freedom unlike any other 9 to 5 job, however being responsible for your future affects many areas of your life. One being owning your own house. While it’s also a thing that gives you a sense of freedom and happiness – being able to live on your own, not depending on anyone – it might also be a thing that is hard to get to while being self-employed. Or at least that’s what many people think nowadays. So, how can you successfully apply for a mortgage while self-employed?

Here we are going to tell you that these two aspects of your life don’t necessarily need to contradict themselves if you do them right.

First, let’s see why self-employed people have a hard time getting a loan then how to apply for a mortgage while self-employed.


Apply For A Mortgage While Self-Employed and What’s Needed


Tax Return Documentation


In the past, lenders required no documentation or low documentation when applying for a loan as a self-employed businessman and this made all things easier and more efficient. However, in time, this proved to be used as an abuse of the old system, so everyone had to start presenting a thorough documentation of their tax returns showing how much they earn annually. By this change in the system, mortgages become harder to reach by self-employed people, even though some of them earn more than a typical 9 to 5 worker does.

The reason for this is their practice to write off a lot of expenses in order to get a tax break. What they don’t know is that by doing so, they might pay less in taxes but they also make it (almost) impossible to be eligible for a loan. Underwriters would always say that the self-employed person doesn’t show enough income to lowers the risk of not returning the money to the lender. Picture this: You earned $70,000 last year, but you wrote off $35,000 as expenses like equipment or mileage so what you were left with was a $35,000 annual income or a $2916 per month. Now you want to get a mortgage of $1500 per month, but this shows as more than 50% of your monthly income and it is only logical that the underwriter will say that you have a high risk of not repaying your debt and will not approve you as such. Normally, with the $70,000 you are earning around $5800 a month and a mortgage of a $1500 is something you can easily pay, but the documentation of your tax returns show different, thus you get declined for the loan. You can use a home affordability calculator to determine what your monthly mortgage payments will be.


Planning In Advance


The underwriter takes two years of your income into an account and calculates the risk from there. So it is only logical that you need to plan for your mortgage at least 2 years in advance. We recommend speaking to an accountant and a mortgage professional, explaining the situation and having some details about the house you want to buy or refinance. Your lender or mortgage professional will calculate how much income you need to show each year in order to be eligible for a loan. Once that’s done your lender will explain what they look at in order to get your mortgage approved.

This being said, as long as you have an adequate income and proof of your self-employment income for the last two years, you are going to be a successful mortgage applicant and can apply for a mortgage while self-employed.


Presenting The Right Documentation


While it’s true that you, as self-employed, will need to gather 5 times the amount of documentation a regular W-2 applicant needs to, it shouldn’t be something that scares you off as long as you planned in advance. If you kept well-arranged documentation the entire process comes down to just making paper copies or transferring everything onto a PDF file and sending them over to your lender.

Below we provided you with the list of documents you need to have in order to apply for a mortgage while self-employed, but if you have some questions or unsure of the process, you can talk to your CPA, as they are usually familiar with the process and know exactly what you need to obtain.


Needed Documents:


  • Personal tax returns for the last two years
  • Business tax returns with schedules K-1, 1120, 1120S
  • Balance sheet
  • Business license
  • Loss statement and year-to-date profits
  • A signed letter by a certified public accountant proving you are still in business


From this point on, the lender gathers and organizes the documentation, opening a case for your approval. And, as long as you’ve gone through the correct planning you should be just fine to apply for a mortgage while self-employed.

Mike Plambeck

Michael Plambeck, the founder and owner of Home Loans For All, bridges the gap between our content team and our industry team by being an expert in both areas. Michael is a home loan expert who has worked closely with loan officers and realtors for over four years, and who is engaged in constant continuing education to make sure that he’s up-to-date on all real estate laws and regulations.

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